A Hot Future for Geothermal

Capturing energy from the earth's heat is pretty easy pickin's for geologically-active
areas of the world like Iceland, Indonesia, and Chile. In some locations, hot
fluids are so near the earth's surface that heat from naturally-occurring hot
fluids can be directly circulated through buildings for heating. Iceland, in
particular, takes advantage of this low-hanging energy fruit.

However, in most areas of the world where geothermal energy is captured, the
heat is used to generate electricity.

Conventional Geothermal Energy

Unlike some of the more common alternative energies -- hydro, solar, and wind
-- geothermal is impervious to weather conditions. This independence means
it provides excellent base load electricity.

Currently all commercial geothermal electricity is generated by so-called
conventional systems, whereby naturally- occurring hot water or steam is accessed
at comparatively shallow depths in areas of very high geothermal gradient.
Wells are commonly drilled to depths on the order of 2 km. The water or steam
they produce is used to spin turbines that in turn generate electricity.

The success and sustainability of a geothermal reservoir in large part depends
on managing the reservoir. For a reservoir to be sustained, the natural and
induced recharge of fluids must balance the produced fluids. Almost all reservoirs
require the produced water to be re-injected in order to maintain reservoir
pressure. Because naturally-occurring water and steam are necessary, potential
development is generally restricted to areas near volcanic activity.

But the geographic limitations of geothermal energy may be about to change
-- and create a much rosier picture for the future of geothermal energy.

Enhanced Geothermal Systems (EGS)

Conventional geothermal systems are possible only in relatively limited geographic
areas. The real prize in accessing geothermal energy - and at a much larger
scale - is through enhanced (or engineered) geothermal systems.

In EGS, hot rocks are artificially fractured, commonly at great depths. Water
is injected to contact the hot rocks and then produced back to the surface;
the energy captured is used to generate electricity. These are very expensive
ventures, with costs in excess of $10 million dollars as a starting point --
ten times the cost of a geothermal well. Current EGS projects are still experimental,
and most have substantial government backing.

A relatively advanced EGS experimental system is currently underway in Australia.
Here, granites producing high heat due to radioactive decay at depths greater
than 3 km are seen as viable geothermal reservoirs. In South Australia alone,
some 23 companies have filled licenses covering 110,000 sq km where suitable
hot granite is believed to exist at accessible depths.

Once such a plant is built, it will be tapped into a virtually limitless supply
of energy that's available without cost, 24/7. Successful implementation of
EGS plants will be the break-out technology for geothermal energy.

Is Geothermal Economically Viable?

A workable technology is one thing, and economic viability is something entirely
different. As you can see from the chart below, not all energy sources are
created equal when it comes to cost per kilowatt-hour.

In terms of production cost, geothermal certainly holds its own at 6.5 cents
per kilowatt-hour -- about the same as wind. Coal and nuclear power are still
powering the way ahead with their 4-5 cent/kWh generation costs, but with natural
gas at 7 cents and petroleum topping 10, geothermal has already proven itself
to be a viable alternative, not only on the economic front but on the environmental
front as well.

In terms of current worldwide energy production, geothermal -- along with
solar -- is a drop in the bucket:

Given the fact that geothermal energy is only a minor player in the worldwide
picture for energy, why are we still bothering with it?

Because in terms of economics, geothermal energy trounces solar and wind.

Here's what we mean:

Geothermal energy does not depend on weather. The sun doesn't shine around
the clock or even every day; neither does the wind blow all the time. In
contrast, hot rocks are there 24 hours of the day, seven days a week. The
predictable amount of electricity makes it easy for geothermal companies
to sign long-term energy contracts without worrying as much about underproduction
or "wasted" production.

Lower capital costs. Even though solar panels have gotten much cheaper
to make, the construction costs of a large solar farm are still extremely
high. Recent estimates place the cost of solar energy to be upwards of
US$10,000 per kilowatt-hour (kW) whereas wind is around $1,700-$3,000/kW.
Geothermal is similar to wind at US$1,600-$2,800/kW depending on location,
though due to reasons 1 and 3, geothermal is economically superior to solar
and wind. In fact, these numbers put geothermal on par with building a
coal plant under the new requirements for carbon capture.

Geothermal capital costs are relatively low for two reasons. First, there's
no need to sequester, or capture and stash, any carbon emissions. This
requirement alone can add 40-60% to fossil fuel projects. Second, geothermal
power plants enjoy the best of both worlds: they require less land than
wind and solar projects, and fewer permits than coal and nuclear because
they're less hazardous.

Higher load factor. Utility companies, and anybody buying power from them,
have to consider load factor: the difference between nameplate capacity
(how much the generator is designed to produce) and actual production.
The smaller the difference, the higher the load factor, and the more money
the utility will make. For a wind farm, the load factor is generally 30-40%,
and even lower for solar farms. In contrast, geothermal power plants can
generally operate near 90%, since, as we said before, hot rocks are always
available.

On an economic basis, geothermal has a virtually unique advantage among the "green" energies.
Its power plants can compete with those fired by coal or natural gas even before
any government subsidies. For geothermal operating companies in the United
States, the government subsidies that Obama is showering upon the alternative
energy sector are pure icing on the cake.

And best of all, geothermal companies are virtually off the radar of most
investors. For those keeping an eye on geothermal technology and geothermal
companies, a window of great opportunity will open.

This kind of research is typical of Casey's
Energy Report and its research team, led by Marin Katusa. And with
a stock pick record of 19 winners in a row -- a 100% success rate over
11 months -- Marin's insightful research has made a great deal of money
for his subscribers.

As a special year-end offer, we have drastically lowered the price of Casey's
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Marin Katusa, an accomplished investment analyst, is the senior editor of
Casey Energy Opportunities, Casey Energy Confidential, and the Casey 50. He
left a successful teaching career to pursue analyzing and investing in junior
resource companies. In addition, he is a member of the Vancouver Angel Forum
where he and his colleagues evaluate early seed investment opportunities. Marin
also manages a portfolio of international real estate projects. Using advanced
mathematical skills, he has created a diagnostic resource market tool that
analyzes and compares hundreds of investment variables. Through his own investments,
Marin has established a network of relationships with many of the key players
in the junior resource sector in Vancouver. Marin has the connections, the
mathematical and analytical acumen to bring the best investment ideas and most
promising private placement offerings to Casey Research subscribers.

Information contained herein is obtained from sources believed to be reliable,
but its accuracy cannot be guaranteed. The information contained herein is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the publisher and are subject to change without notice. The information
herein may become outdated and there is no obligation to update any such information.
Doug Casey, entities in which he has an interest, employees, officers, family,
and associates may from time to time have positions in the securities or commodities
covered in these publications. Corporate policies are in effect that attempt
to avoid potential conflicts of interest, and resolve conflicts of interest
that do arise in a timely fashion. No portion of this web site may be extracted
or reproduced without permission of the publisher.

Dr. Marc Bustin is a professor of petroleum and coal geology in the Dept.
of Earth Sciences, University of British Colombia. He has authored over 150
scientific articles on fossil fuels and served as an associate editor for journals
like the Canadian Society of Petroleum Geology Bulletin. Marc is an elected
Fellow of the Royal Society of Canada and a member of American Association
of Petroleum Geologists (AAPG), The Society for Organic Petrology and the Geological
Society of America. He has received several awards for excellence in his field
including: the A.L. Leverson Memorial Award from the AAPG, the Thiesson Medal
from the International Committee for Coal Petrology in 2002 for his contributions
to coal sciences/organic petrology and the Sproule Award in 2003 for his contributions
to the study of unconventional gas resources.

Information contained herein is obtained from sources believed to be reliable,
but its accuracy cannot be guaranteed. The information contained herein is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the publisher and are subject to change without notice. The information
herein may become outdated and there is no obligation to update any such information.
Doug Casey, entities in which he has an interest, employees, officers, family,
and associates may from time to time have positions in the securities or commodities
covered in these publications. Corporate policies are in effect that attempt
to avoid potential conflicts of interest, and resolve conflicts of interest
that do arise in a timely fashion. No portion of this web site may be extracted
or reproduced without permission of the publisher.